(The online version of this article appears in three parts. Click here to go to part one or part two.)

WHILE the Tiananmen generation reflects on the past promise of democracy, a new generation of Chinese students, both at home and abroad, is looking ahead to the overwhelming challenges facing China in its risky bid to move toward a market-based economic system. Unlike their predecessors, these young Chinese tend to favor working within the limits set by the regime. Like their predecessors, they are dreamers -- but they're keeping at least one eye open. They know that in the short term the crux of China's future is those 24 million excess workers. To their credit, though many of them are studying in the United States, they are keen to return to China and make a difference.

Yet the system within which they are so eager to work is hopelessly mismanaged. Perry Link, of Princeton, and his colleague Liu Binyan, one of China's most seasoned independent journalists, wrote a scathing critique of Chinese "reform" for The New York Review of Books in 1998. They used the research of an unorthodox economist named He Qinglian, whose work made a bad joke of the idea that economic reform in China has led to anything that deserves to be called progress. Officials in charge of implementing economic change were never made accountable to the people through accompanying political reforms, so the entire system became corrupt. The result, the economist showed, has been not the production of wealth but simply its transfer. The growing "free" market in China is mostly about well-connected entrepreneurs speculating with public funds, pocketing the profits, and assigning the losses to the state. When Chinese workers pen Marxist manifestos and take to the streets against their new capitalist oppressors, it is these government opportunists about whom they are up in arms.

Contrary to conspiracy theories about a small clique of robber barons, however, just about everyone in China's burgeoning middle and upper classes is implicated. When I lived in China, in the late 1980s, ordinary transactions were for my Chinese friends a matter of identifying the government official who could help and slipping him something under the table. David Goodman, a China expert in Australia, has documented such corruption extensively and concludes that as long as the Communist Party remains committed to its version of reform, Chinese citizens who are making money have a vested interest in playing along. "Far from being alienated from the party-state or seeking their own political voice," Goodman writes in a chapter of The Paradox of China's Post-Mao Reforms (1999), the new middle classes "appear to be operating in close proximity and through close cooperation" with the government. Laborers in the ailing state-owned sector, who number somewhere around 70 or 80 million, are clearly losing out, as the wealth they produce is squandered on the one hand and the security they have enjoyed is revoked on the other. China also has at least 70 million workers toiling in semiprivate industries in townships and villages. Several million more work in enterprises financed by capital from outside mainland China. Martin King Whyte, a sociologist at George Washington University, studies how workers in these latter two groups are faring and compares their plight with the worsening lot of state employees.

"Working conditions in TVEs [township and village enterprises]," Whyte has written, range "from paternalistic to dreadful." In 1994 China passed a labor law relating to such enterprises that specified workers' rights, in terms of maximum hours per week, maximum overtime, minimum wages, and the like. But the law is widely ignored, particularly because many of the workers in these factories are rural migrants who are thus a long way from home and easy to exploit. Their working conditions are appalling: toiling twelve hours a day or longer, seven days a week, they operate unsafe equipment and have accidents at high rates, meanwhile earning miserable pay. Injured workers are simply replaced, and arbitrary wage reductions and firings are common. In most factories financed from outside mainland China the picture is even worse. About 80 percent of such enterprises are established with capital from Hong Kong, Taiwan, and South Korea; they exhibit the harsh regimens and abusive treatment of the stereotypical sweatshop.

IF China's private sector can keep growing enough to absorb excess labor, and if economic-cum-social solutions similar to those advanced by the emerging post-Tiananmen elite succeed, a long-term transition away from repression and toward a regulated capitalism could well get under way. Enough new laws have been passed that Chinese citizens are now able to sue government officials over unfair treatment, and they are beginning to do so; on the village level elections are being instituted that might eventually provide a model for the country as a whole.

If, on the other hand, China's economy falters while masses of workers are laid off, the prospects are bad. Since a nationwide revolution against the status quo seems unlikely, worker revolt would probably result only in a protracted war of attrition by the government. The recent crackdown on the religious sect Falun Gong would look like a mild warm-up exercise by comparison.

The United States can do very little to affect the trajectory of Chinese history, but what it does do could be significant. Western corporations that subcontract in China with unscrupulous East Asian operators should be called to account, and human-rights organizations must continue to monitor the plight of Chinese labor. But cutting off direct U.S. business dealings -- whether investment or exports -- with China, as many human-rights activists demand, is likely only to pamper our consciences at the expense of desperate Chinese workers. In the short term, by joining the World Trade Organization, China does risk increased layoffs, owing to international competition. In the longer term, though, the more Westerners there are doing business in China (like Carl in his factory), the better Chinese working conditions are likely to become. Punishing China economically in an effort to encourage American-style political change could, by undermining the power of economic reformers, have quite unintended consequences. "If China's elites once again fragment into conflicting factions," Martin Whyte writes in The Paradox of China's Post-Mao Reforms, "it is not unlikely that more-conservative leaders will denounce exploitation of workers and attempt to recruit proletarian support for their cause." In attempting to kill off the last vestiges of Chinese communism, the United States would have orchestrated the rise of old-school Marxists instead.

(The online version of this article appears in three parts. Click here to go to part one or part two.)